tv After Words CSPAN October 25, 2015 12:00pm-1:01pm EDT
i think the jury is still out. if there were criticism, if there was a too-high a price. under her leadership passing a slew of major bills, some of them became law and some did not. some were tough votes for moderate members of her party. votes on climate change, obama care, those members subsequently lost reelection. now it's not clear if the votes necessarily cost them reelection, but for some of them it might have made the difference and to the extent that it did, it may have cost democrats control of the house of representatives. this is a -- you know, this is a dilemma that all speakers have is do you get major bills passed or do you protect them in getting reelected at the expense of getting what you want done, but if -- if the things that she
accomplished cost house of representatives and subsequently hindered president's obama agenda, then that could be part of her legacy that's less positive. >> host: did you have a smile on your face or scowl? >> guest: i worked for a democrat. it was -- he was one of the democrats who did not lose, so it was more a sign of relief quite frankly. almost every democrat was in danger of losing. it was a wave election. it was quite shock but curiosity. now the republicans have a turn, let's see what happens next. >> host: what do you teach?
>> guest: introduction to american politics, course, u.s. congress, part of that course i have the students playing members of congress and get a bill enacted through the house of representatives and that's a great experience for myself and i get to play speaker. i also teach course called power and america, politics, learning about different aspects of power in the united states or interest groups, power of president, power of people, power of voters, those are some of the classes that i teach hear. >> host: why don't speakers traditionally vote? >> guest: hybrid position as speaker as i mentioned before. they are seen partisan leader but also as a nonpartisan leader. if you're nonpartisan means that you're not supposed to be taking
part in the issues of the day that put you on one side of the question or the other and to the extent speaker is supposed to be presiding over the house and ensuring everything is supposed to be done fairly, people might question the ability to do that, so traditionally speakers do not participate in votes, they can, they are no prohibited from doing so. traditionally they do not. this also has changed over time and in the 1970's speakers started participating more and more often. cull -- going >> he votes very, very rarely on the house floor. i think that is in part that the speakers needs to move himself or herself out of debates and conflicts in order to be seen as someone who really has the whole house and the interest of the
whole house at heart. >> host: and we have been talking to catholic university professor matthew green, published by yale university press. this is the cover. you're watching book tv. >> is there a nonfiction author you would like to see, tweet us on book tv or post a comment on our wall. facebook.com/booktv. next on book tv's afterwards programs, journalist describes her book "shaky ground", she's interviewed by reporter from the wall street journal. >> we are here with bethany.
thanks for being here. >> thanks for having me. >> of course, this is something that i spend a lot of time spending on. why don't you start by telling us about why you wrote the book and why fannie and freddie are so important to the modern populist? >> guest: i started studying in the wake of this scandal. at the time i was shocked to find out that companies like this existed. what is a government sponsored enterprise. fannie was created back in the wake of the depression by roosevelt in order to help make home ownership widely available.
if you have an institution that could buy loans that banks, lenders had made that would agree up the banks. but the idea was this would help foster home ownership, and that was the beginning of fannie may and unique system, no other country has it. no other country has a 30-year fixed rate either like the way we do. >> host: right. >> guest: most people credit to the existence of fannie and freddie. large financial institutions world they guaranty over $5 trillion of mortgage related debt. they're absolutely enormous. critical to the function of the global financial system and their sort of part of the machinery that make our life possible.
when you go and get your loan, you expect to have mortgage rate quoted to you right then and there. for decades, fannie has been part of what has made that function seamlessly. >> host: a lot of people know from one of the first two companies taken over from the government. some people say that were partly responsible for the financial crisis. a lot of people think that this is a problem that the government fixed a long time ago, right? but now kind of here we are and, i guess, how far we have gotten. >> guest: we haven't gotten anywhere, that's part of the problem. you're exactly right, they were the first two companies -- i guess there was bear stearns first. fannie and freddie were
substitute were supported by line of credit from the treasury and effectively managed by a government agency, when they were taken over in the fall of 2008 the idea was this was temporary. we were going to figure out how to reform the finance system and talk about why people think it was problematic, we are going to reform them and get on with it and here we are seven years later, these two giant companies are still in the state called conservatorship. it's still totally unresolved. that's an issue for every american with a mortgage. it's an issue for every american who has wealth tied up in a house. it's an issue for every investor because the $5 trillion of security through financial system, they're everywhere. if there's a change in the value of the securityies or lack of
confidence in them that will have ripple effect. >> host: i'm a home owner, i go to my bank or lender and get a mortgage and the loan is granted to me. >> guest: those lenders don't keep mortgages anymore. they don't keep them, they sell them off and most of them since financial crisis t great majority get sold the fannie may and package them off and sell them to securities to investors around the world and the existence of this system and fannie and freddie act insurance company. the investor who buys them has
to worry that interest rates may change but not that you are unable to pay. so that system has turned american mortgage into something that buyers around the world can invest in without thinking twice because they don't have to go through an analyze lights and make sure you are going to pay the mortgage, they can buy the securities. knowing or feeling that they know that the securities, that the securities are safe. and the way that system has developed, it means that in china can finance home in kansas. it's turned american home ownership what's more domestic than home into a global financial issue. >> host: right. this is something that's unique to the united states or at least the united states or one or two other countries. so what does having the system in place give americans,
somebody in the united kingdom getting home? >> guest: that's part of a debate. private capital would fulfill the role that fannie and freddie play. i want to pause on that for a second. the fact that fan incomer ie are government sponsored. it's lead to the perception in the years before conserve -- conservatorship, the u.s. government would step in and pay. that's obviously what happened since they were put into -- into conservatorship. that system has given americans access to a 30-year fixed mortgage which is something that people around the gloap don't have, 30-year fixed rate repayable, i think i saw some data from the institute that on
80% of buyers who are buying are choosing 30-year. >> host: in other countries mortgage for much shorter term. >> guest: if interest rates doubled, your mortgage payments could double every month. >> host: right. >> guest: the existence of fannie and freddie has made a stable at least for the home owner. >> host: having the government in there and giving this suggestion or whatever you want to call it to investors, what did that get homeowners before the crisis? >> guest: there's a good question, i think it got -- the argument was it got them a lower
rate than they would otherwise have. the fact that they have u.s. government standing behind them meant that they could pass along lower interest rates, per -- perceived as safer and pay in the system without fannie and freddie and certainly meant this long-term mortgage. there was always a debate in before the crisis of how much of benefit that would give the homeowners. in the wake of the financial crisis, private capital completely fled the mortgage company. if we hadn't had fan incomer ie and freddie there would not have been mortgage market. financial crisis would have been a lot worst. fannie and freddie provide
mortgage credit when private sector wouldn't do it. >> host: you spent a lot of talk about how they sort of accumulated political influence in washington. can you talk a little bit about how they did that in the sort of, you know, the sort of opinions and fierce of fannie and freddie that came as a result? >> guest: yeah, there were always people in the government in academia who said, what are we doing with the government present in the housing market, we are a free market economy, we are a capitalist economy, why can't private capital just take care of americans mortgage needs? there was this sort of ideological resistence. in response to that, fannie and freddie created real lobbying, fannie had the most
sophisticated lobbying operation that he had seen in his entire life. the reason they did that because there were forces in the united states government that were trying to kill them. they were right. they developed outside aggression to any threats to take away their advantages they had from this perception that the u.s. government would stand beside them. it came a political force and i think that in some ways intensified the resentment against them. people who found themselves on the wrong side and, again, this was lead by stanley, bigger and more aggressive and more powerful of the two companies, you had people who ended up on the wrong side of fannie and really resented the company for the way -- for the way it behaved. you had in the 1990's fannie's executives were democratic players, the chairman of the
unit verse -- universe, there was talk the first black president, they were democratic power players. there was a lot of resentment around that too. private companies, banks, even mortgage insurers, other players in the home ownership market totally resented fannie and freddie's markets because it meant less for them. i'm not the first to use the phrase, the housing industrial complex, debatable alliance of everybody who has a stake in the enormous enterprise, that is the american mortgage market. >> host: kind of their lobbying
in the book, the ones that you mentioned if i remember right, a nonprofit that was offered by grant by fannie, what happened after that? >> guest: yeah, we can come back to why this is ironic, one of the criticisms in 1990's, one of responsibilities that was given to them by congress is sort of special advantages they had from the perception they were close to the u.s. government, was that they had to do things for affordable housing and had specific quotas of loans that they needed to make that would satisfy the affordable housing goals, and during the 1990's the constant cry from people on the right who didn't want anything, it was all about their own process and they aren't doing anything to make loans more widely available. it was criticizing them for doing that, only to call up
fannie, he was supposed to get grant, only to get a call from the senior person at fannie, sorry, no more money, we are not going to give it to you. he called jim johnson and said, you can't possibley -- >> host: i remember a quote from the book. something like, they'll cut you up, gut you and throw you in the river or something like that. >> guest: it was a great quote from the washington post and i think it's another of the great irony, sounded like a candy company, grandma, sweetless, it's monstrous financial power. >> host: you probably got this from your reporting, part of the resentment of how they acted, how much people felt that they depended on the government in the first place, on the one
hand, you're dependent for business model and on the other hand you are spending all this money, threatening people around washington, et cetera. >> guest: great quote in the book from larry summers, look, if you were going to design a scheme from extort from the u.s. government, you couldn't do it better than that, basically had the hidden subsidy, the idea that the government would stand behind fanny and freddie. this was kind of the free money that could exploit and pay executives really well. >> host: how do we know that em -- guaranty was going to homeowners? >> guest: it wasn't. most of the benefits from that
was flowing through to executives and shareholders of -- it would reduce it a little bit. i think that's a good interesting debate. i think it's sort of irrelevant in the context of what happened in 2008 because the value of fanny and freddie is that they are there when the private market isn't. we may not need them in good times but we certainly need them in bad times. and then to ignore what happened in the fall of 2008 when deserted the market, seems to me like a funny way to look at the issue.
>> host: they built a lot of resentment. >> guest: absolutely. why do we need these companies? >> host: right. >> guest: the course of people that said they're going -- they're too big to fail, they are going to land on taxpayers, which is exactly what happened even if it wasn't precisely for the reasons that were -- that people were predicting. president obama only few years ago described it as heads we win and tails we lose. so it was this idea that no matter what happened fannie and freddie would win, in bad times -- >> host: you feel a lot of that even today. congress can't pass anything it seems like and then a few days ago one of the things that the senate agreed on was to put a new cap on the pay of fannie and freddie ceos.
>> guest: it has become, i think, extremely fashionable that these companies after the financial crisis, which is why -- ironic, the fendence has never been more than the financial crisis. >> host: right. >> guest: the hatred of them has intensified. i think there's a clear reason for that. the narrative took hold and is very pop intlar in a lot of circles but fannie and freddie and the goals they had to make housing affordable were solely responsible for the financial crisis. if you can say that fannie and freddie and the government were responsible for the financial crisis, well, then, there was no problem with the private sector. the private sector doesn't need any more regulations. and as a result of that narrative even fannie and
freddie's supporters have run from them. barney frank was the congressmen associated with fannie and freddie and defender and even him says it should be abolished. >> host: there's a scandal that was easy to forget because of the financial crisis even though it was less than 20 years ago. this happened in the early 2000. >> guest: this was my first exposure to fannie and freddie, accounting scanneddals, -- scandals, and they were slightly different. freddie was actually understating earnings and the idea that fannie was manipulating accounting and overstating its earnings. it was a huge scandal and the management team was kicked out.
the company had to do statement of earnings. their regulator called fannie, citigroup is a government sponsored like enron. those are big words. someone said to me the story like mixture, it has all the strange twists and turns. the really odd thing about the accounting scandal when fannie announced release of statement of earnings, it went way up, despite all the rhetoric about how franklin was a fraudster and saying there was absolutely no evidence that either man did
anything wrong. you would expect when a regulator calls the company a government sponsored enron that this is going to end with the bang, people in jail and it ended -- >> host: why do you think the government overplayed their hand there? >> guest: i think it was deep seated fear and anger, they were a huge danger to the financial system. fannie in particularly successfully thought by muffle lg -- muffling political cloud. people started to feel frustrated as inability and real sense that the two companies were a systemic risk, i think
the right became very ugly on both sides. the unfortunate thing about it is that after the management tames of -- teams of both, congress was still unable to pass any new legislation. >> host: right. >> guest: ii want to pause on that. republicans are righteous on the issue. we had a republican in charge of the white house and the republican congress and they were still unable to pass any legislation. >> host: right. >> guest: it helps to explain where we are now. republicans are reluctant to -- to sort of disrupt this issue as some democrats are. >> host: right, we had to start talking about what companies do. it's not something you can easily unless --
>> guest: right. >> host: let's talk about the housing boom and i guess what fannie and freddie participation was. they didn't really go as far out as some of the other private lenders. what were fannie and freddie doing during this period? >> guest: definitely contributed to the problem. i just don't think it's the full cause of -- of financial crisis. by the mid-2000's the share had been cut in half as prime lending instead of mortgage selling to fannie and freddie were selling to wall street firms. that's what all the haters wanted to see happen, fannie and freddie cut out of the market. so around 2005 both fannie and
freddie did two things. they started buying securities for own portfolios and they decided we need to get into this business too. and you can trace that through market share numbers, interviews with executives, executive presentations, they were terrified that they were losing their profits, losing their hold on the market, so they began to guaranty riskyier loans. they were never as risky, but to help bring down the system the default rate on loans like a fraction of -- of the default rate. but nonetheless, it totally contributed to the crisis and it was enough to create the perception that fannie and freddie needed a bailout. >> host: right. one of the things that people allege is that it was not only
fannie and freddie that decided to take on more risks and the government was making getting more risks. where do you come on that? >> guest: i think it was some of both. but they did a lot of what they did in order to increase their market share and produce profits and you can see that through executive presentations at the time. how do we keep up with the market, how do we keep our process, we need to be relevant. so you can't simplistic about it. you can't say it was one thing or the other. it was both, it was a mixture of reasons. it was a mixture of reasons why they did it. >> host: whose job was that to make sure it wasn't getting out of hand? >> guest: the only job was to regulate fannie and freddie. the regulator knew that they were going to riskier loans.
windows security started to lose value, everyone started to take a huge loss and what they were doing buying these loans that had already been sold off to investors by wall street, that was a screwed up thing and they were trying to satisfy their wall street pack on those products, so they were trying to satisfy their housing goals, also. i went to pause on this issue of the housing goals in the crisis because i think there is this misconception that i think is worse than people who understand the issue because it's so much intellectual he dishonest because putting people who could not afford homes into homes is
so dishonest. it was the majority of risky loans that were packaged up and turned into securities were not paid for the purpose of home ownership. whereby someone takes out a bigger mortgage, takes the cash, uses it to pay off bills, pay down a third data may be going vacation, maybe remodeled their house, but if you had intimate those loans and of the crazy investment loans where people were buying seven or eight properties, there would not have been a financial crisis, so the crisis has become this referent of of ownership, if it proves this idea we should never extend credit people who might be on the marches-- margins of being qualified for homeowner should because what happened in the financial crisis and there has been academic work done showing the majority of the financial crisis was actually affluent borrowers who did not pay their
refinancing and it's a referendum on extending credit to people who can afford to pay it back in this rampant expression-- >> host: is interesting because there has been entire books written and even ones that have come out recently that have blamed fannie and freddie for the crisis, so i guess whether this become-- as the two i gets a way-- one, it-- people like to simplify complex issues and it feels like clarity and i think if you can't say the government caused the financial crisis you have a really clear simple explanation and you don't have to say it was all of these, wicked factors you can contribute it to this one civil thing and i think that is part of the appeal. i think the other part is the regulation appeal and if you could say fannie and freddie in the government did this, then you can say we don't need more
regulation for wall street. i am not a believer in regulation and is not a cure to all problems, so i don't mean to sound per regulation. but, you can get-- if you get rid of dodd frank, if the whole problem is fannie and frank, then throw it all out. on top of that you can get rid of fannie and freddie and never have the government in the housing market again, so i think it's this very appealing argument and its gain an enormous amount of credit oldie despite the fact i think it is readily disproved the ball if you spend time thinking about it. >> host: since 2008, when anything started to go downhill, when did it start to become apparent that there were serious problems at any and freddie and then what would've happened had
of the government is not stepped in? >> guest: the last one i'm not sure i can answer, but it directly relates to this idea of fannie and freddie caused the financial crisis because the notion is that fear about these loans that were backed by fannie and freddie started tremors in the system and that spread to private market loans and that's what brought down the whole system and that's categorically not sure if you're fannie and freddie stock prices were at all-time highs and the first real tremor was when a french money market fund couldn't pay because of losses on us subprime mortgages, which were clearly wall street mortgage-backed securities, nothing to do with fannie and freddie and then this giant lender called new century, which was one of the big sub prime lenders was bankrupt in 2007, before there were even tremors at fannie and freddie. as the year went on the
financial crisis was so odd, not one big conflict, this eruption and then things would calm down and then another eruption and as the year 2008, went on people got worried about fannie and freddie because you could see that they had a lot of riskier-- if you have a giant housing downturn going on with two highly leverage institutions and taking the credit risk of us homeowners, they will have a problem and i think arguably there could've been a huge loss of confidence and even if they hadn't ventured into these riskier mortgages. so, then the summer of 2008, stock prices were plummeting and there was great fear that they wouldn't be able to do-- will be able to raise money in the markets and the whole machine would grind to a halt. i think it's fascinating because we generally think of globalization is a good thing, not always.
the treasury secretary tells a great story about being in beijing for the summer olympics and hearing the story that the russians were trying to get that chinese to dump their holdings of penny and freddie backed securities to create chaos in the global economy. then there is this chinese financial telling bloomberg that the us government let fannie and freddie failed in that it would be the end of the global financial system. so, there was this idea that if these two companies were to go down, their securities were everywhere and would disrupt foreign central planks in foreign global relations and wreak havoc through the banks and was shut down mortgage markets. there was this perception we couldn't let these two companies fail. >> host: it's interesting because having so much interconnectedness and having such a large market, even if you are not sure of what the probabilities are that fannie and freddie would fail, this-- the consequences were so dire that you would have an outcome like the buyers were saying you
would rather act and be wrong man roll the dice. >> guest: there is this huge subterranean fight over whether fannie and freddie needed a bail out and i tented that the government a bit of slack for what it did in 2008. it was a financial crisis it is easy to look back now and say people could've done things differently and may be the company did not need a bailout or we could have let them fail, but hindsight is really 20/20, certain to think arguments about what happened in 2008, are a bit beside the point. although, there are arguments, which is why i caveat what i say. >> host: and yet the way they put them into conservatorship, it was the genesis of why things are still so screwed up now, so talk a bit about why they use this process called conservatorship and the structure they set up. >> guest: conservatorship is a
well-known thing at how the fbi saved the family bank and it's been the model governing fannie and freddie conservatorship lifted and how they we ability a family bank. it wasn't like the idea of conservatorship was anything new. that-- that said there are a couple of weird things about the any and freddie conservatorship and one of the terms was so much tougher than the bailouts of big banks and the bailout of aig. aig's back to semi- normal, but back to a publicly traded company. the banks finance their executives, tens of millions of dollars in bonuses to their executives. fannie and freddie has become a prism from which it seems like they will never be released and
there has been some argument by former fdic people that say this is not what conservatorship history of conservatorship is and put them on a firm footing up at them back out there. it is not a license to steal the profits of these companies forever. >> host: it's interesting because the fdic has conservatorship law and for the conservatorship of beginning and freddie to hold separate law called hera was passed to kind of create different structures and sort of-- people thought they were familiar with the concept of conservatorship and a lot of times the fdic uses conservatorship as a stopping point to receivership, which is honestly not the government wants to do with fannie and freddie, but when the government bailed out fannie and freddie, it's not like they took away all of the publicly traded shares; reich? what exactly did they leave behind? >> guest: it's another, i think it's kind of a game of let's pretend. the government left them 20% of the common securities of fannie mae and freddie mac in the hands
of private shareholders. these were never supposed ebony value because the government was taking a huge 10% dividend to any money the government put in fannie and freddie they would get on their money, huge onerous dividends of in that government took 79.0% of the equity of both companies, so what was left would lose money from here until eternity was nothing, so shareholders were supposed to be wiped out even though there was this stomp, basically that was left trading. at the time the government did it they said, the regulators ban and freddie even said this might have value someday. >> host: do you think they said that demented or they said that -- >> guest: i don't care if they said and meant it or not, they said it and they left the stock outstanding, so even though now they may wish they didn't and i have heard arguments from people in the government to that we
only did not because we had to, because we didn't want to put fannie and parties that on the us balance sheet, so you shareholders should know you were wiped out even if that is not we said at the time, you should just know better. >> host: for a time after the conservatorship that shares traded like they were wiped out. they still traded, but they were pennies. >> guest: penny stock, but then what happened is that some investors started to do their work and they said all of these losses that fannie and freddie are taking, they are headline that any of brady has taken a $87 billion in taxpayer money to bail them out, but i think it's not as widely understood and it's made up number. fannie and freddie had to take money based on accounting concept, and complicated accounting concept called net worth and that means if your assets are worth less than your liabilities that is below zero and you have to draw money to
fill the hole in this concept of net worth takes into account not only state losses, but it says if you lose money on this loan in the future that will reduce your network today also. so panic and freddie took a lot of money based on losses that were supposedly coming in the future, but actually never materialized and in truth the companies didn't actually lose that much money on a cash basis, but they had to draw this money anyway. so, some investors began to do the work and said these companies at some point will reverse all these losses and be really profitable. would we do in america with companies that have gotten into trouble? we restructure them in salvage them and restructure them, so this is a great that. >> host: then what happened? >> guest: and then the us government in the summer of 2012, for reasons that may be a great debate and controversy said we will take instead of just having you pay 10% dividends on whatever money you put in fannie and freddie we will take almost every penny of
profits you make from now until eternity. >> host: the government does give an explanation for why they did that; reich? describe that. >> guest: they argue that fannie and freddie will keep losing money and that they all thought fannie and freddie would keep losing money and they didn't kill the company's word to come profitable and it would be to order sent to require them to pay this 10% dividend and instead they would take everything that they happen to make, so if they made money and one quarter they would take it and if they lost money in another quarter they would get money instead of having-- it's a bit if you want me money and i was supposed to pay your a dollar in interest every month then i couldn't pay and so you said, bethany, i won't take the dollar if you don't have it, but when you do have money i will take it all. >> host: i guess part of the my understanding is part of the reason they say they structured it is they were especially worried about-- it comes back to
the interconnectedness idea we were talking about before and at least for a certain time it wasn't as if fannie and freddie had an instant amount of money to draw from the government, so that extent what they have less it's smaller and you start having investors and mortgage backed securities in china thinking do i have to worry about the. >> guest: it's one of the downsides again of this global connected system we have and the sensible reason was we don't want the foreign central bank of china to be worried that fannie and freddie don't have enough capital. we want to make sure their securities are safe and protected, so this makes the securities seem safer than having this requirement to pay a dividend with money they didn't have. >> host: you mentioned in 2012, the housing market was starting -- it was showing signs of the bottomed and getting
better again. so, we know what the government said was the reason they did it, what do you think was the reason >> guest: this is still a subject of mammoth lawsuits that are winding their way through the court could the ashby things that come out on both sides that are interesting and i almost hope this goes to trial because i think it would be quite fascinating inside with the workings of the government's as well as fannie and freddie, but it is hard to see that the government didn't understand that the two companies were about to become really profitable. they had investors telling them that's and there has been interesting stuff that has come out in court cases testimony from a former fannie financial person saying that they knew we were about to become really profitable. so, that is strange. i guess i am in the camp of if the government had a good reason for doing this than i would like to know what it was, but the reason they have given doesn't appear to make sense and that makes me very nervous because i
don't like feeling that we as taxpayers and citizens are being applied to and there was something else going on and we don't know what it was because the apparent reason given just as not seem to make sense. i'm not saying it doesn't-- but i have this rule after two decades of covering business that you should never underestimate the amount of incompetence in the world. it's just somewhat hard to believe. >> host: through my reporting i mean sometimes it felt like you have to remember that these are huge organizations and sometimes the right people don't know-- >> guest: it is possible. it is totally possible. it just feels so at odds with what actually happened given the enormity of the profits that have come from banning freddie and the last couple of years,
$241 billion to the us treasury, so it's not like they squeaked out a few pennies here and there and the us government didn't know this was going to happen, i mean, $241 billion of profits. >> host: so, you think that maybe the reason they started sweeping the profits kind of set us back when we were tied at the '90s and early 2000, these are companies people work afraid of and you think that-- it sounds like you think this was an opportunity. >> guest: i don't know. i don't know, so it could be the government's explanation is absolutely true. the facts just don't quite line up, so that makes me a bit nervous. there's plenty of speculation that came out to my reporting about the reasons they might have done it and one was these companies become incredibly profitable again there will be pressure on us to pop them back to life as they were and these companies were the worst thing ever. how could we do that. i think there speculation and it
is certainly true that they have been used as a true to reduce the federal budget deficit, so there is likely should the government those billions for its own purposes rather than having fannie and freddie keep the billions of dollars that they were making and that could be possibly part of it. i think some of the e-mails and presentations that have come out in the court cases suggest also that in this kind of environment of not wanting to see wealthy investors get paid even though those wealthy investors happened to manage the money and pension funds, but there still is kind of anti- hedge fund we don't want to see the investors get rich and i think there was a feeling explosively written we don't want investors to have a payday. >> host: so, you started talking about it, but we are talking about the hedge funds we see on tv all the time. like we are talking about paulson and company, bill ackman and pershing square. mutual fund manager, which is a popular retail fund and a lot of people on the fair home find, so
you mention the ones brought before the sweep, but some of these funds, i mean, they analyze the legal case and are picking up shares after they saw some profits. >> guest: you have a little luck, i guess, intrinsic passivity for them because the ones that bought before the government change it, how are you possibly to know? afterwards what people say and i think it is actually a fair point, is that this is wrong and you can't do this. this is not the way our system is supposed to work. there's this great line in the book, i took 80% of your house the financial crisis and you came back and started paying and making your mortgage payments and i said no, i'm going to take 100% and it feels wrong. there's another great line i loved the book that came from the former executive and this person said well, it feels anti- american and then again there are people that would argue that they were always anti- american. >> host: do you feel like the involvement of the hedge fund
with this kind of complicated issue. >> guest: i think it has definitely complicated issue. i would argue it's a good thing for a couple of reasons, but i think it's complicated the issue because it has meant that you have these very powerful and some of the most powerful wealthy of people in the nation sort of in their suing the us government, fighting for an outcome that is not what the administration has said it wants that investors have very much push for it and not just we want to get paid, but we want fannie and freddie back and that's precisely what the administration said it does not want. president obama has been very clear that fannie and freddie has to go, so it is certainly complicated. i argue it's a good thing for a couple of reasons and what is i don't think we want the government to have a free hand. this is an issue that affects every american in some way or another. it affects the interest rate you pay on your mortgage, the availability of mortgage credit,
the value of your house. i don't know that we want our government making that decision behind closed doors that will affect everyone without some sort of debate and that's one of the big reasons i wrote this book. i also think that what happened in 2012, maybe the government was completely-- maybe everything they did was correct, but don't you want to know? isn't it good to have transparency? who else but a wealthy investor can afford to sue the us government? i'm always a believer in more transparency and more answers and let's see what happens. so, i have come to believe that the investors, while they are after their own payday are also sort of raising awareness of this situation anyway that i that i think is probably good. >> host: one of the great frustrations of the court cases so far is that they are going through this discovery process, but what they had discovered is
not available to the public, at least yet. it's not even available to the hedge funds, people-- available to the lawyers. >> guest: super annoying. wouldn't you love to see that stuff? >> host: yes. and the plaintiffs-- attorneys appear to be confident in their filing asserting the government lied. every filing will go something like, such and such government official said acts, but because of and then a big redacted passage and that is clearly not the case. >> guest: lies and the secrets. >> host: as you said, it's almost, if all you have is the plaintiff's attorney, if you are on the government's site and all you have is the plaintiff's attorney characterizing these documents it will be the worst reflection coming out, but a judge just recently decided, that at least for the time being that these documents will be
made public. so, one-- this came up in another talk you cave a couple of days ago and some of the hedge fund, which don't want this litigation to go all the way to the supreme court or wherever it ends up, their investment return-- they're hoping the government will decide to settle. one of the ideas is that if we can make this discovery public then it will be so embarrassing or the threat of it becoming public will be so embarrassing that they would settle. when do you think of that strategy? >> guest: i don't like that as an answer because i want transparency and i actually want to know what the government was thinking when they decided to take all of the profits. so, i don't like the idea of possible government this behavior being squelched or covered just so that investors can have a settlement. i feel like that's kind of anti-
transparency. that said, one of my fears about where we are today is that there will be an external shock like victory in the lawsuits for the hedge funds or like an incredibly missing document that the government does not want public, so they will settle with investors or there will be some sort of shock that will force fannie and freddie to go back to the treasury and take more money and then they will become a huge political football again. so, instead of making a well-thought-out decision about what structure in the mortgage market could look like again, an issue that matters to every american, then we will lurch in some sort of half-baked answer. in order to avoid discovery, avoid the political football and i think that is a fight mean process. >> host: so, the obama admin-- ministration has been etiquette -- added adamant that they encourage this.
are we getting anywhere? >> guest: the obama administration has been a little bit more pointed than that in this issue and correct me if i am wrong, but they haven't clear they want fannie and freddie gone and obama even said in a speech in phoenix a couple of years ago, it was heads you win entails lose in the cubbies have got to go. so, they have been insistent that they want private capital to finance the american mortgage market. we have got this kind of disconnect going on and tell me if you sense the same thing, but i think there is this pretty widespread acceptance that if it were not for some sort of government backed in the housing market this 30 fixed rate would not be there and certainly would not be there for the most population in all economic times. it might be there for the wealthy, four more people in economic times when they are good, but not the fixture of american life as we know it, so
i think there is actually acceptance that we don't want to pull the plug on some government presence in the housing market yet there is this anti- dna freddie rhetoric and so it's kind of a stalemate of what do we do. some of the most serious reform was a bill i believe in the spring of 2014. >> host: it seems like a long time ago. >> guest: it does, that there is an argument that that bill re-created fannie and freddie. it was a different structure, but you still have government backed and if you still have a government backstop then why not reform fannie and freddie. give them better regulation, make sure their incentives not to produce extraordinary profits for their shareholders and executives, but rather run the business and structure them differently. may be even tossed them some
measures of the mortgage market, but why wouldn't you use-- try to fix what you have instead of starting from scratch with a totally untested system that is going to support the most important asset in most americans lives. >> host: what do you feel should happen right now? >> guest: i am somewhat torn in this. there is a part of me that has always disliked-- e-mail is been part of our society from the beginning. i felt like we needed to do a larger reef think of this notion of how we finance homeownership and a larger rethink down to if you are doing a cash out refinancing, should be treated like if you are buying a home? if we encourage homeownership and why do we also increase people to turn their home in credit card.
shouldn't we do this larger rethink. i'm not sure we will do that. so, i have started to believe i would rather see the reformed fannie and freddie with much tighter regulation and much-- limits on what their executives can make and may be structure utility with at ex- apple rate of return rather than swing from the fences and make whatever you can and get rich it's sort of i have used this line, but it's like winston churchill's famous line about democracy, penny and freddie are the worst possible system until you consider the alternatives and then you think they don't look so bad. i guess i have become an advocate of fixing what we have while recognizing that it's not perfect. there are dangers in that system. there are dangers in every system. so, there is this, i think
another side that if you have the big banks financing the mortgage market then that is private capital. i mean, fannie and freddie, yes, had to be bailed out by the government. so did the big banks, so if we fix that now with a hefty financial reform legislation like dodd frank him if the big banks control the mortgage markets, don't you think they would have be bailed out the next crisis and then we undo everything that was redone by dodd frank. why is that private capital? >> host: ..